PHIL.

CPA LICENSURE EXAMINATION FINANCIAL ACCOUNTING & REPORTING

1. Davidson Corp. granted 1,000 share option to its employee on January 2, 2017, for services performed 4. The items which are amounts reclassified to profit in the current period but were recognized in other
during 2016 and 2017. At the end of the grant, the fair value of the share options is P60,000. The options comprehensive income in the current or previous period are
are exercisable on January 2, 2018, and expires on June 30, 2018. On July 1, 2018, it was determined A. Correcting entries C. Reclassification adjustments
that none of the options were exercised. On December 31, 2018, the company should B. Prior period errors D. Unusual and irregular items
A. Not adjust or reverse compensation expense
B. Record P60,000 of compensation expense in 2018 5. In a period of declining prices, the use of the following inventory cost flow method that would result
C. Restate its financial statements for 2016 and 2017 reduce compensation expense for each year in the highest cost of goods sold is
D. Make a prior period adjustment to retained earnings for compensation expense A. FIFO C. Specific identification method
recognized in 2016 and 2017 B. Moving average method D. Weighted average method RPCPA
2. Acacia Co. qualifying as an SME provided the following data for 2018: 6. Closing entries are best described as
Gross profit on sales P1,500,000 I. Made at the end of an accounting period
Royalty revenue 200,000 II. Prepared after the adjusting entries and financial statements have been prepared
Dividend received from an associate – cost model 20,000 III. Prepared for the purpose of reducing all nominal and temporary accounts to zero
Administrative expense 600,000 A. I only C. I and III only
Amortization of goodwill 10,000 B. I and II only D. I, II and III
Distribution costs 250,000
Research and development cost (5 years) 100,000 7. Gain or loss from disposal of investment property is the difference between the
Based on the information given for Acacia Co., Consider these statements. A. Fair value and carrying amount of the asset
I. Under the fair value and cost model, dividend received from an associate is recognized as B. Gross disposal proceeds and fair value of the asset
income C. Net disposal proceeds and carrying amount of the asset
II. Under PFRS for SME’s, it is appropriate to amortized goodwill D. Gross disposal proceeds and carrying amount of the asset
III. Research and development cost should not be amortized but recognized immediately as expense
when incurred 8. The qualitative characteristic of faithful representation, according to IASB framework for the
The statement/s that is/are CORRECT is/are preparation and presentation of financial statements, includes
A. I and II only C. II and III only A. Comparability and Consistency
B. I and III only D. I, II and III B. Neutrality, Completeness, and Free from error
C. Timeliness, Predictive value, and Feedback value
3. Melbourne Co. leased equipment to Vitoria Co. under a non-cancellable lease with a transfer of title. D. Predictive value, Confirmatory value, and Materiality
Melbourne will record depreciation expense on the leased asset and interest revenue
related to the lease as 9. All the following qualify as an underlying EXCEPT
A. B. C. D. A. Commodity price C. Insurance index
Depreciation expense No No Yes Yes B. Exchange rate D. Stock shares
Interest revenue No Yes No Yes
10. A non-publicly accountable entity can claim compliance with PFRS for SME’s in the financial
statements, includes
I. The entity prepares the financial statements in accordance with local tax requirements that are
substantially the same as the PFRS for SMEs
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PHIL. CPA LICENSURE EXAMINATION FINANCIAL ACCOUNTING & REPORTING

II. The entity prepares the financial statements in accordance with the local tax D. Seventy percent of the receivable should be separately reported, with the balance offset against
requirements that are, except in name, word for word the same as the PFRS for SMEs 30% of Sundy Corp. payable to Galaxy Corp.
III. The entity prepares the financial statements in accordance with PFRS for SMEs
IV. The entity prepares the financial statement in accordance with full PFRS 14. The gain or loss from extinguishment of a financial liability by issuing equity instruments is
A. I and III only C. III and IV only presented as
B. II and III only D. II, III and IV only IFRS Materials 2018 A. Component of finance cost
B. Other income or other expenses
11. The statement that is best defined as an accrual is adjusting entries where C. Separate line item in the income statement
A. Cash flow precedes revenue or expense recognition D. Component of other comprehensive income
B. Revenue or expenses recognition precedes cash inflow
C. Cash flow and revenue or expense recognition are simultaneous 15. Norton Co. did not recognize in its 2017 financial statements the net deferred tax asset (i.e., deferred
D. Revenue or expenses are recognized in the absence of cash flow evidence tax asset net of related valuation allowance) when a loss from discontinued segments was
carried forward for tax purposes. This was so because it was more likely than not that none of this
12. SME Apricot Co. acquired on January 1, 2014, a trademark of a line of herbal products for deferred tax asset would be realized. The company had no temporary differences. The tax benefit of
P450,000. The SME expect to continue marketing the products using the trademark the loss carried forward reduced current taxes payable on 2018 continuing operations. The 2018
indefinitely. An analysis of the surrounding circumstances provides evidence that the line of income statement would include the tax benefit from the loss brought forward in
trademarked products may generate net cash inflows for an indefinite period, though, as estimate of A. Extraordinary gain
the useful life of the trademark is not possible. B. Income from continuing operations
A competitor developed a technological breakthrough in 2017 expected to result in a product that will C. Gain or loss from discontinued segment
reverse the demand for the SME’s patented product line. At December 31, 2017, the recoverable amount D. Cumulative effect of accounting changes
of the trademark was P80,000. It is expected that the demand for the SME’s product line will
remain until December 31, 2019, when the competitor launches the new product. The SME 16. For IFRS reporting, the valuation method use for intangible assets are
intended to continue manufacturing the patented products until December 31, 2019 A. Cost model or the fair value model
SME Apricot Co.’s amortization of trademark for the year 2014 and 2017, respectively, shall B. Cost model or the revaluation model
be C. Revaluation model or the fair value model
A. P7,500 and P135,000 C. P45,000 and P45,000 D. Cost model or the fair value through profit or loss model
B. P15,000 and P150,000 D. P45,000 and P105,000
17. The item from the following which is an application of the principle of systematic and rational
13. In its financial statements, Galaxy Corp. uses the equity method of accounting for it’s 30% allocation is
ownership of Sundy Corp. At December 31, 2018, Galaxy has a receivable from Sundy. The A. Amortization of intangible assets C. Research and development cots
receivable is to be reported in Galaxy’s 2018 financial statement as B. Officers’ salaries D. Sales commissions AICPA 1181
A. The total amount of the receivable should be disclosed separately
B. The total receivable should be included as part of the investment in Sundy Corp., without separate 18. Ansel Co. sells appliances that include a three-year warranty. Service calls under the warranty
disclosure are performed by an independent mechanic under a contract with Ansel. Based on experience,
C. None of the receivable should be reported, but the entire receivable should be offset against warranty cost are expected to be incurred for each machine sold.
Sundy corp’s payable to Galaxy’s Corp.

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PHIL. CPA LICENSURE EXAMINATION FINANCIAL ACCOUNTING & REPORTING

The warranty costs should be recognized by Ansel SITUATIONAL

A. When the machine are sold Situation – 1
B. Evenly over the life of warranty Information relevant to three different companies follows.
C. When the service cells are performed
 Jonald Co. made available the following information relative to its defined benefit obligation plan
D. When payments are made to the mechanic
for the year 2018: Benefit obligation, January 1, P4,500,000; Fair value of plan assets, January 1,
P5,000,000; Current service cost, P1,700,000; Discount rate, 10%; Benefit paid to retirees, P1,000,000;
19. Paula Co. issued ten-year P2,000,000 debenture bonds on January 2, 2018. The bonds pay interest Contribution to the plan, P1,200,000; Actual return on plan assets, P600,000; Net actuarial gain
semiannually. The company uses the effective interest method to amortize bond premium and due to remeasurement of benefit obligation, P200,000; Past service cost due to amendment of the
discounts. The carrying value of the bonds on this date was P1,859,530. A journal entry was benefit plan, P300,000
recorded for the first interest payment on June 30, debiting interest expense for P130,160 and crediting
cash for P120,000. The annual stated interest rate for the debenture bonds is
 Alexander Co. commenced construction of a new plant on March 1, 2018. The cost of
A. 6% C. 12%
P36,000,000 was paid in full to the contractor on March 1, 2018 and was funded from the existing
B. 7% D. 14%
general borrowings. The construction was completed on October 31, 2018. The borrowing during
2018 comprised of the following: PhilTrust Bank at 6%, P8,000,000; Union Bank at 8%,
20. Continuing Professional Development (CPD) is required for
P10,000,000; Metrobank at 9%, P30,000,000.
A. Renewal of CPA license
B. Accreditation to practice accountancy profession
C. Neither renewal of CPA license nor accreditation to practice accountancy profession  Esmeralda Co. provide the following information
Dec. 31, 2017 Dec. 31, 2018
D. Both the renewal of the CPA license and accreditation to practice accountancy
Physical inventory, at cost P800,000 P1,200,000
profession
Sales 6,000,000
Cost of sales 3,100,000
21. Fraternity Co. disclosed in the notes to its financial statements that a significant number of its unsecured
Accounts receivable, trade 1,500,000 1,700,000
trade accounts receivable are with companies that operate in the same industry. This disclosure is
Accounts payable, trade 1,700,000 1,900,000
required to inform financial statement users of the existence of
A. Concentration of credit risk
B. Concentration of market risk In 2018, accounts written off amounted to P120,000. Sales returns with credit memo amounted to P150,000
C. Risk of measurement uncertainty and purchases returns, P80,000. Cash receipts from customers after P220,000 discounts totaled
D. Off-balance sheet risk of accounting loss AICPA 2010 P7,900,000 while cash payments to trade creditors amounted to P5,500,000 after discounts of P300,000. Cash
paid to customers for good returned P100,000 which was debited to accounts receivable.
22. London Co. maintains a defined benefit pension plan for its employees. The service cost 23. Jonald Co.’s benefit obligation at December 31, 2018 is
component of London’s net periodic pension cost is measured using the A. P5,200,000 C. P5,750,000
A. Projected benefit obligation B. P5,650,000 D. P5,840,000
B. Expected return on plan assets
C. Unfunded vested benefit obligation 24. The amounts that Alexander Co. should recognize as borrowing cost to be capitalized in relation to
D. Unfunded accumulated benefit obligation Wiley the plant and the amount of interest expense for 2018, respectively, shall be
A. P0 and P3,980,000 C. P1,990,080 and P1,989,920
B. P1,989,920 and P1,990,080 D. P3,980,000 and P0

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PHIL. CPA LICENSURE EXAMINATION FINANCIAL ACCOUNTING & REPORTING

25. The amount that Esmeralda Co. should report as gross sales for 2018 under the accrual basis is 27. Under the lower of cost or net realizable value rule, the measurement the inventory item of Gaspar
A. P8,120,000 C. P8,490,000 Co. should be at
B. P8,370,000 D. P8,590,000 A. P10.70 C. P11.20
B. P10.90 D. P12.00
26. The amount that Esmeralda Co. should report as gross purchases for 2018 under the accrual basis is
A. P5,500,000 C. P6,000,000 28. The amount of impairment loss that should be reported on the income statement of Nangkil Co. for
B. P5,780,000 D. P6,080,000 the period ended June 30, 2018 is
A. P100,000 C. P700,000
Situation – 2 B. P250,000 D. P750,000
Information pertaining to four different companies follows:
 Information on the inventory of Gaspar Co.: 29. The impairment gain or loss to be recognized by Theame Co. on the intangible assets in the
Cost, P12.00; Estimated selling price, P13.60; Estimated disposal cost, P.20; Normal gross margin, 2017 and 2018 income statement shall be
P2.20; Replacement cost, P10.90 B. C.
2017 P0 P30,000 loss P30,000 loss P30,000 loss
 In June 2018, Nangkil Co. determined that actual costs incurred associated with the equipment used in its 2018 P0 P12,000 gain P18,000 gain
assembly line significantly exceeded original expected costs. At June 30, 2018, the company compiled
the following information: 30. The amount to be recognized by Alberto Co. as gain on reversal of impairment at December 31,
Original cost of the equipment, P1,600,000; Accumulated depreciation, P600,000; Expected net 2018 is
future cash inflows (undiscounted) related to the continued use and eventual disposal of the A. P20,000 C. P36,875
equipment, P900,000; Fair value of the equipment, P750,000. B. P30,000 D. P46,875
 Theame Co. uses the revaluation model for intangible assets. On March 1, 2017, it acquired Situation – 3
intangible assets with an indefinite life for P300,000. On December 31, 2017, it was Relevant data for three different companies follows,
determined that the recoverable amount for these intangible assets was P270,000. On December  Harvesus Co, had outstanding on December 31, 2018, 10%, P5,000,000 face value convertible
31, 2018, It was determined that the intangible assets had a recoverable amount of P282,000. bonds maturing on December 31, 2021. Interest is payable annually on December 31, each P1,000 bond
is convertible into 50 shares of Harvesus’ P20 par value ordinary shares. The unamortized
 On July 1, 2018, Alberto Co. has an equipment with a cost of P500,000 and accumulated premium balance on December 31, 2018 is P128,000. The paid in capital arising from bond
depreciation of P375,000. On that date, the company classified the equipment as held for sale and decided conversion privilege account has a balance of P100,000. On December 31, 2018, an individual
to sell it within one year. On this same date, the equipment had an estimated selling price of P50,000 holding 500 of the bonds exercised the conversion privilege when the market price of Harvesus’
and a remaining useful life of 2 years. It is estimated that selling cost associated with the disposal ordinary shares was P30 each
equipment will be P5,000. On December 31, 2018, the estimated selling price of the equipment had
increased to P75,000 with estimated selling cost of P10,000.  Montreal Co, had 100,000 of 15 par value-ordinary shares on January 1, 2018. During 2018, the
following transactions pertaining to its ordinary shares occurred.
Purchased 5,000 shares as treasury at P30 each. The
ordinary share was split 3-for-1
Reissued 4,000 treasury shares at P16 each

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PHIL. CPA LICENSURE EXAMINATION FINANCIAL ACCOUNTING & REPORTING

 Jericho Co. issued on January 1, 2017 share appreciation rights to its president exercisable for one year the second year of warranty and 10% will be in the third year. In 2017 and 2018, the company was able to
beginning January 1, 2019 provided that the president is still in the employ of the company at that sell 8,000 and 9,000 units, respectively at a selling price of P4,000 per unit. The company also
date of exercise. Each right provides for a cash payment equal to the excess of the company’s share incurred actual repair cost of P650,000 and P1,500,000 in 2017 and 2018, respectively. Sales and
price over P50. The equivalent number of shares for share appreciation rights will be based on the repair occur evenly throughout the period.
level of the company at the date of exercise as follows:
Level of sales P200,000,000 to P500,000,000 Over 500,000,000  Victoria Co. issues on December 31, 2016, 20-year bonds of P5,000,000 for P5,851,160 to yield
Equivalent shares granted 12,000 15,000 10%, interest is payable annually on December 31 at 11%. On June 30, 2018, Victoria retires 2,000
of its own P1,000 bonds at 96% plus accrued interest. The accounting period of Victoria is the calendar
Actual sales achieved by Jericho and the share price at the end of each year are as follows: year. The company uses the effective interest method of amortization.
2017 2018
Sales P330,000,000 P520,000,000  Bernadette Co. records its purchases at gross amount but wishes to change to recording purchases
Share price P88 P95 net of purchase discounts. Discounts available on purchases recorded from October 1, 2017 to
September 30, 2018, totaled P10,000. Of this amount P1,000 is still available in the accounts
31. Under IAS 32, Harvesus Co.’s entry to record the conversion should include a credit to share payable balance. The balances in Bernadette’s accounts as of and for the year ended September 30,
premium of 2018, before conversion are: Purchases, P500,000; Purchase discount taken, P4,000; Account
A. P0 C. P12,800 payable, P150,000
B. P10,000 D. P22,800
35. The amount of liability for warranty to be reported in thirdie Co.’s December 31, 2018
32. Montreal Co.’s total cost of the remaining treasury shares and the number of outstanding shares at statement of financial position and the predicted warranty expense covering 2017 and 2018 sales still
December 31, 2018, respectively, shall be under warranty at December 31, 2018, respectively, shall be
A. P110,000 and P285,000 C. P330,000 and P285,000. A. P10,486,000 and P10,666,000 C. P11,856,000 and P12,816,000
B. P110,000 and P289,000 D. P330,000 and P289,000 B. P10,666,000 and P10,468,000 D. P12,816,000 and P11,856,000.
33. Jericho Co.’s compensation expense recognized in the accounts for the year ended 36. Victoria Co.’s gain or loss on the retirement of bonds is
December 31, 2017 is A. P80,000 gain C. P400,097 gain
A. P0 C. P228,000 B. P80,000 loss D. P400,097 loss
B. P190,000 D. P285,000
37. The carrying amount of Victoria Co.’s remaining bonds at December 31, 2018 is
34. Jericho Co.’s compensation expense recognized in the accounts for the year ended A. P3,000,000 C. P3,489,626
December 31, 2018 is B. P3,470,663 D. P5,000,000
A. P228,000 C. P447,000
B. P337,500 D. P675,000 38. Bernadette Co.’s entry to record conversion in the recording of purchases from the gross to the net
method shall include the following EXCEPT
Situation – 4 A. Debit to purchase of P10,000
Data given for three different companies follows. B. Debit to account payable of P1,000
 Thirdie Co. started business in 2017. It sells printer with a three-year warranty. Thirdie C. Debit to purchase discount of P4,000
estimates its warranty cost as a percentage of peso sales. Based on past experience, it is estimated D. Debit to purchase discount loss of P5,000
that 3% will be repaired during the first year of warranty, 5% will be repaired during
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PHIL. CPA LICENSURE EXAMINATION
Situation – 5
Information provided relative to four different companies follows:
 Benshaw Co. regularly buys shirt from Davis Co. and is allowed trade discount of 20% and 10%
from the list price. Benshaw purchased shirts from David on April 11, 2018 and received an invoice
with list price amount of P50,000 and payment terms of 2/10, n/30. Benshaw uses the net method to
record purchases.
 On July 1, 2018, Dormer Co. purchased a new machine on a deferred payment basis. A down payment of
P100,000 was made and 4 monthly installments of P250,000 each are to be made beginning August 1,
2018. The cash equivalent price of the machine was P950,000. Dormer incurred and paid installation
cost amounting to P30,000
 In 2018, Josefe Co. incurred the following costs related to a new solar-powered car:
Salaries of laboratory employees researching how did to build the new car, P500,000; Legal fees for
the patent application for the new car, P40,000; Engineering follow-up during the early stages of
commercial production (the follow-up occurred during 2018), P100,000; Marketing research to
promote the new car, P60,000; Design, testing and construction of a prototype, P800,000.
 Privado Co. is engaged in raising dairy livestock. Data provided in 2018 follows:
Carrying amount in January, P2,500,000; Increase due to purchases, P1,000,000; Gain arising from
change in fair value less cost of disposal attributable to price change, P200,000; Gain arising from
change in fair value less cost of disposal attributable to physical change, P300,000; Decrease due
to sales, P400,000; Decrease due to harvest, P100,000.
39. Benshaw Co. should record the purchases from Davis Co. at
A. P34,300 C. P35,280
B. P35,000 D. P36,000
40. The amount to be capitalized by Dormer as the cost of the machine is
A. P950,000 C. P1,100,000
B. P980,000 D. P1,130,000
41. The amount that should be reported by Josefe Co. as research and development expense in the 2018
income statement is
A. P500,000 C. P1,440,000
B. P1,300,000 D. P1,500,000
OCTOBER 2019
FINANCIAL ACCOUNTING & REPORTING
42. The carrying amount of the biological assets of Privado Co. on December 31, 2018 is
A. P3,000,000 C. P4,000,000
B. P3,500,000 D. P4,400,000
Situation – 6
Information pertaining to four different companies follows.
 The information provided by the Guiyan Corp. with respect to the cash and cash equivalent at December
31, 2018 follows:
Checking account at Bank of Asia (overdraft), P510,000; Checking account at Sterling Bank,
P2,000,000; Employee’s postdated check, P120,000; Foreign bank account which is unrestricted
and in equivalent peso, P2,500,000; IOU from the company president, P500,000; Money order,
P160,000; NSF Customer check, P100,000; Payroll account, P800,000; Petty cash fund comprising
P25,000 in currency and expenses receipts for P50,000, P75,000; Postage stamps, P10,000;
Traveler’s check, P300,000; Treasury bonds, P1,500,000; Value added tax account, P600,000.
 Included in the bank reconciliation of Denver Corp. on December 31, 2018 were the following: Credit
memo for November recorded in December, P60,000; Credit memo for December not yet recorded,
P80,000; Deposit in transit at December 31, 2018, P100,000; Erroneous bank charge in December
corrected by bank in December, P8,000; Erroneous receipt by the company during December
where no correction was made until the following year, P10,000; Total company receipts for
December, P850,000; Total credit per bank in December, P800,000
 Adelpha Corp. sells various merchandise both for cash and on credit. Accounts receivable
transaction during 2018 follows:
Accounts written off as worthless, P6,400; Cash received from cash customers, P206,200; Cash
received from credit customers where P231,000 was received from credit customer who took the
advantage of the 4% discount within the discount period, P330,000; Credit memoranda issued to
credit customers for sales returns and allowances, P26,400; Cash refunds given to cash customers for
sales returns and allowances, P17,100; Recoveries on accounts written off as uncollectible in prior
periods which are not yet included in the above collections, P6,800; Sales for cash and credit,
P791,000.
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PHIL. CPA LICENSURE EXAMINATION FINANCIAL ACCOUNTING & REPORTING

The December 31, 2017 statement of financial position balances for account receivable and Situation – 7
allowance for bad debts are P85,800 and P7,900, respectively. An aging of the receivables indicates Information relevant to four different companies follows:
that P15,500 of the account receivable balance are deemed uncollectible.  The following notes payable, issued by Square Co., were outstanding during the entire
construction of an assets that qualified for interest capitalization.
 Redentor Corp. purchased for P108,000, on July 2, 2018, 2,000 shares of Paula Corp.’s newly issued 6% P8,000,000 notes payable bearing interest at 10%
cumulative P20 par value preference share capital. Each share also had one stock warrant attached, which P10,000,000 notes payable bearing interest at 5.5%
entitled the holder to acquire, at P19, one share of Paula P10 par value ordinary share capital for each None of the borrowing were specified for the construction of the qualified asset.
two warrants held. The market price, on this date, of the preference share capital (without warrants)  On June 1, 2018, Dreamer Co. entered into a real estate lease agreement for a new building. The lease
was P50 per share and the market price of the stocks warrants was P10 per warrants. On September is an operating lease and is fully executed on that day. According to the terms of the lease, payments of
2, 2018, all the stock warrants were sold for P19,800 P30,000 per month are schedule to begin on October 1, 2018 and to continue each month thereafter
for 56 months. The lease term spans five years. Dreamer has a calendar year-end
43. The correct amount to be reported by Guiyan Corp, as unrestricted cash on December 31, 2018 is
A. P6,085,000 C. P6,585,000
 Millenial Co. incurred on March 1. 2018, an apparently permanent inventory loss from market decline
B. P6,285,000 D. P6,635,000 in the amount of P600,000
44. Denver Corp.’s amount of deposit in transit at November 30,2018 is
 The following information pertains to Manaoag Co. and its operating segments for the year ended
A. P32,000 C. P42,000
December 31, 2018:
B. P40,000 D. P50,000
Total revenues P100,000,000
Sales to external customers (including in total) 20,000,000
45. Adelpha Corp.’s balance of accounts receivable that would be shown in the December 31, 2018
statement of financial position and the bad debts expense to be reported in profit or loss for the year
47. The interest rate that should be used by Square Co. to calculate capitalized interest on the
ended December 31, 2018, respectively, shall be
construction is
A. P298,175 and P7,200 C. P304,575 and P7,900
A. 5.5% C. 7.75%
B. P298,175 and P15,500 D. P304,575 and P8,300
B. 7.5% D. 10%
46. Redentor Corp.’s gain on sale of the stock warrants is
48. Dreamer Co.’s lease expense for 2018 is
A. P0 C. P1,800
A. P84,000 C. P196,000
B. P800 D. P9,800
B. P90,000 D. P210,000

49. The amount of inventory loss that should be recognized by Millenial Co. in its quarterly income
statement for the 3 months ended March 31, 2018 is
A. P150,000 C. P400,000
B. P200,000 D. P600,000

50. External revenue reported by Manaoag Co.’s reportable segments must at least be
A. P60,000 C P20,000,0000
B. P15,000,000 D. P40,000,000

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PHIL. CPA LICENSURE EXAMINATION FINANCIAL ACCOUNTING & REPORTING

Situation – 8 D. Miscellaneous expense 18,200

Data for four different companies follows: Petty Cash 17,800
 On December 5, 2018, Manchester Co. established a petty cash fund of P20,000. On December Cash short and over 400
31, 2018, the petty cash fund was examined and found out to have receipts and documents for
miscellaneous expenses amounting to P18,200. In addition there was cash amounting to P2,200. 52. The net realizable value of Norway’s accounts receivable at December 31, 2018 is

 Norway Co. uses the net price method of accounting for cash discount. In one of its transaction A. P536,640 C. P624,000
on December 5, 2018, Norway sold merchandise with a list price of P1,000,000 to a client who was B. P559,000 D. P650,000
given a trade discount of 20%, 10% and 5%. Credit terms given by Norway were 4/10,n/30. The
goods were shipped FOB destination, freight collect. Total freight charge paid by the client was P25,000. 53. Ben Hur Co. savings in purchasing the call option amounts to
On December 10, 2018, the client returned damaged goods originally billed at P100,000 A. 42,632 USD C. 52,632 USD
D. 50,000 USD B. 62,632 USD
 Ben Hur Co. entered on March 15, 2018 into a firm commitment to purchase on May 31, 2018 a
machinery from Osaka Co. for 100,000,000 yen. The exchange rate on March 15 is 100yen 54. As provided in PFRS 9, the amount of gain that Glorietta Co. should recognize in other
= 1USD. Ben Hur paid 10,000USD for a call option contract in order to reduce the exchange rate risk comprehensive income for 2018 is
that could increase the cost of the machinery in USD. The contract gave Ben Hur the option to purchase A. P0 C. P650,000
100,000,000yen at an exchange rate of 100yen=1USD on May 31. The exchange rate on May 31 is B. P550,000 D. P1,200,000
95yen = 1USD
Situation – 9
 Glorietta Co. acquired at the beginning of 2018 nontrading equity instrument for P5,000,000 with Data available for four different companies follows.
transaction cost of P550,000 and irrevocably designated as financial asset at fair value through other  Sabrina Co. reported an impairment loss of P250,000 in its income statement for the year 2015. This
comprehensive income. The fair value was P6,200,000 at December 31 and the transaction cost that would loss was related to an item of property, plant and equipment which was acquired on January 1, 2007 with
be incurred on the sale of the investment is estimated at P500,000. a cost of P2,000,000 of no residual value. Depreciation on the asset is computed on a straight line
basis and annual depreciation on cost is P80,000. Depreciation for the year 2016 was computed on the
51. The entry that would be required by Manchester Co. on December 31, 2018 to record the asset’s recoverable amount at December 31, 2015. On December 31, 2018, Sabrina decided to
replenishment of the petty cash fund is measure the asset using revaluation model. This asset was then appraised at a fair value of
A. Petty cash 18,200 P1,650,000.
Cash 17,800
Cash short and Over 400  Delfina Co. suffered damages from a storm surge on December 31, 2018. The entire inventory and most
B. Miscellaneous Expense 18,200 of the accounting records were completely destroyed. Information salvaged from remaining records
Cash 17,800 follows:
Cash short and Over 400 January 1: Inventory, P750,000; Accounts receivable, P350,000. December
C. Miscellaneous Expense 17,800 31, Purchases, P2,750,000; Cash sales, P450,000;
Cash short and Over Cash 400 Collections of accounts receivable, P4,200,000; Accounts receivable, P550,000; Gross profit
18,200 on sales, 40%.

 Industria Co. acquired a patent on June 20, 2015 for P2,100,000. Management expects that the
patent will be useful to the company for its remaining useful life of 10 years. On January
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PHIL. CPA LICENSURE EXAMINATION FINANCIAL ACCOUNTING & REPORTING

10, 2017, Industria spent P350,000 in successfully defending the patent against a competitor. During  Dervick Co. had retained earnings of P3,300,000 at the beginning of 2018. Throughout 2018, the
2018, management determines that the estimated remaining life of the patent should be reduced to company had 20,000 shares of P100 par value ordinary shares that are issued and outstanding.
only five years, including the current year. Industria’s policy is to amortize the cost of intangible During 2018, Denvick reported profit of P5,500,000, purchased treasury shares for P600,000,
assets using straight-line method to the nearest month. declared cash dividend of P1,800,000, reissued all treasury shares at a gain of P100,000, and declared
and issued a 10% ordinary share bonus issue when the market value was P180 per share
 Develos Co. insured the life of its president for P16,000,000, Develos being the beneficiary of an
ordinary insurance policy. The premium is P400,000. The policy is dated January 1, 2014. The cash  Nestor Co.’s owners equity was affected by the following transactions during 2018. At the
surrender value on December 31, 2017 and 2018 are P120,000 and P160,000, respectively. Develos beginning of the year, there are 100,000 ordinary shares outstanding.
follows the calendar year as its fiscal year. The president died on October 1, 2018 and the policy February 1 21,000 ordinary shares were sold in the market.
was collected on December 31, 2018. No premium was refund on the insurance settlement. Purchase 5,000 ordinary shares to be held in treasury July 1
Issued P1,000,000, 5-year, 10% bonds at face value.
55. The amount of the gain on impairment recovery and the revaluation surplus, if any, that Each P1,000 bond is convertible into 50 ordinary shares.
Sabrina Co. should report in 2018 and shall be July 1 35,000 ordinary shares were sold.
A. B. C. D. October 1 A 10% bonds issue was declared and distributed.
Gain on impairment recovery P0 P203,125 P250,000 P1,500,000
Revaluation surplus P0 P610,000 P1,280,000 P1,030,000 Profit for the year ended December 31, 2018 is P2,926,000. The tax rate is 30%.
56. The amount of inventory that was lost by Delfina Co. from the storm surge is 59. Under IAS 32, the amount of share premium that should be recognized by Consuelo Co. as a result of
A. P590,000 C. P1,350,000 the conversion is
B. P750,000 D. P1,560,000 A. P500,000 C. P1,000,000
B. P700,000 D. P1,200,000
57. Industria Co.’s amortization expense for the year 2018 is
A. P294,000 C. P336,000 60. The retained earnings balance of Dervick Co. at December 31, 2018 is
B. P315,000 D. P358,750 A. P3,300,000 C. P6,740,000
B. P6,640,000 D. P7,000,000
58. Develos Co.’s gain on life insurance settlement is
A. P15,320,000 C. P15,780,000 61. Nestor Co.’s number of shares to be used in the calculation of diluted earnings per share in 2018 is
B. P15,620,000 D. P16,000,000 A. P146,300 C. P171,300
B. P150,425 D. P173,800
Situation – 10
Data gathered from the three different companies follows. 62. Nestor Co.’s 2018 basic earnings per share and diluted earnings per share, respectively,
 Consuelo Co. converted P5,000,000 bonds of its 10% convertible bonds into 100,000 ordinary shares, P50 shall be
par value on January 1, 2018, after recording interest and amortization. On the conversion date, the A. P19.45 and P16.84 C. P20.00 and P16.84
carrying amount of the bonds were P5,500,000 and the paid in capital arising from the conversion B. P19.45 and P17.04 D. P20.00 and P17.04
privilege recognized in the accounts is P200,000. The market value of the bonds without the
conversion privilege was P6,000,000, and Consuelo’s ordinary shares was publicly trading at P60
each.

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PHIL. CPA LICENSURE EXAMINATION FINANCIAL ACCOUNTING & REPORTING

Situation – 11 64. The balance of retained earnings of Delmar Company on June 30, 2018 is
The following information pertain to two different companies A. P1,540,000 C. P1,560,000
Delmar Company has two classes of shares outstanding, 10%, P100 par preference share capital and P10 par B. P1,550,000 D. P3,300,000
ordinary share capital. During the fiscal year ending June 30, 2018, the company had the following
transaction affecting shareholder’s equity 65. The cash collected by Jansen Company from customer during 2018 is
A. P11,890,000 C. P12,010,000
Number of shares Price per share B. P11,960,000 D. P12,060,000
Issue of preference shares 5,000 P140
Issue of ordinary shares 20,000 70 66. The cash disbursed by Jansen Company from purchases during 2018 is
Retirement of preference share 1,000 150 A. P8,200,000 C. P8,300,000
Purchase of treasury share – Ordinary Shares Share split 5,000 80 B. P8,270,000 D. P8,500,000
(Par value reduced to P5) 2 for 1
Reissue of treasury shares – Ordinary shares 5,000 52 Situation – 12
Information for four different companies follows.
The balance of the accounts in the shareholders’ equity section as of June 30, 2017 statement of financial  Northgate Co. leased equipment from Sander Co. on July 1, 2018, for an eight-year period expiring
position follows: Preference share capital, 30,000 shares, P3,000,000; Ordinary share capital, 100,000 June 30, 2026. Equal annual payments under the lease are P200,000 and are due on July 1, of each year.
shares, P1,000,000; Preference share premium, P1,200,000; Ordinary share premium, P8,000,000; and The first payment was made on July 1, 2018. The rate of interest contemplated by Northgate and
Retained earnings, P2,550,000. Sander is 10%. The cash selling price of the equipment on Sander’s accounting records was
P1,100,000.
Dividend were paid at the end of the fiscal year on the ordinary shares at P6 per share and on the preference
share at the preference rate. Profit after tax for the year is P750,000
 Granada Co. provided the following information relative to its 2018 profit and loss: Profit
before income taxes P2,880,000
Jansen Company provided the following information: Income tax expense
Dec. 31, 2017 Dec. 31, 2018
Current P970,000
Trade accounts receivable, net P 840,000 P 780,000
Deferred 90,000 (1,060,000) Profit
Inventory 1,500,00 1,400,000
P1,820,000
Accounts payable 950,000 980,000
Granada’s first year of operation was 2018. The Company’s tax rate is 30%. Management decided to
use accelerated depreciation for tax purposes and straight-line method for financial reporting purposes.
Total sales were P12,000,000 for 2018 and 11,000,000 for 2017. Cash sales were 20% of total sales each
The amount charged to depreciation expense in 2018 was P820,000
year. Cost of goods sold was P8,400,000 for 2018. Each year there was P50,000 bad debts estimate and a
P50,000 write-off.
 Alhambra Co. provided the following information concerning its plan assets to cover a defined benefit plan
for the year 2018. The interest rate used by the entity is 10%.
63. The balance of additional paid in capital of Delmar Company on June 30, 2018 is January 1 December 31
A. P2,620,000 C. P10,600,000
Fair value of plan assets P5,000,000 P5,800,000
B. P9,200,000 D. P10,620,000
Contribution to plan 500,000
Benefits paid to retirees 100,000

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PHIL. CPA LICENSURE EXAMINATION FINANCIAL ACCOUNTING & REPORTING

 Mikahil Co. had the following loans outstanding in 2018:

Specific construction loan, 8% interest, P1,000,000; General purpose loan, 10% interest,
P20,000,000. The entity begun the Self-constructed of a building on January 1, 2018 and the building
was contemplated on December 31, 2018. The following expenditures were made during the year:
January 1, P3,000,000; July 1, P6,000,000, November 1, P9,000,000

67. The amount of the profit on the sale and the interest income that Sander Co. would record for the year
ended December 31, 2018 shall be
A. P140,000 and P52,000 C. P340,000 and P52,000
B. P140,000 and P104,000 D. P340,000 and P104,000

68. The amount that Granada Co. did deduct for depreciation on its tax return for 2018, assuming the
temporary difference existed between the book income and taxable income, was
A. P820,000 C. P1,060,000
B. P910,000 D. P1,120,000

69. Alhambra Co.’s actuarial gain/loss in 2018 taken to other comprehensive income is
A. P100,000 gain C. P400,000 gain
B. P100,000 loss D. P400,000 loss

70. The total cost of Mikahil Co.’s new building is

A. P18,000,000 C. P19,440,000
B. P18,730,000 D. P19,800,000

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